Nov 24, 2008 (LBO) – Sri Lanka’s Hatton National Banks (HNB) micro finance default rate is lower than the bank average default rates due to the shame factor and peer pressure from villagers, says managing director Rajendra Theagarajah.
He says there’s a myth that if the business is from the bottom of the pyramid, the chances of that loan portfolio going bad is high.
Bank statistics have shown the non performing loans (NPL) amongst micro finance industries is just 3.8 percent, well below the bank’s average of 7.52 percent.
Most high street banks require collateral as security when making credit available to small business or budding entrepreneurs.
“This has nothing to do with collateral or security,” Theagarajah says. “As you get away from the urban and into rural areas, it is the pressure of the shame factor and secondly the peer pressure.
The credit risk of a push-bike owner in a village is far less than a guy who would not think twice about handing over his Bavarian Motor Works (BMW) key for a failed lease and saying ‘keep it’, says Theagarajah.
Theagarajah was speaking on ‘Going for gold from the bottom of the pyramid’ at the 25th LBR-LBO CEO forum held recently for a large group of senior corpo